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    Credit Extension Policies

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    Discuss how each of the following factors would tend to affect a firm's credit
    extension policies:

    a. A shortage of working capital
    b. An increase in output to the point where the firm is operating at full production capacity.
    c. An increase in the firm's profit margin (i.e. its profit contribution ratio)
    d. An increase in interest rates (i.e. borrowing costs)

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    Solution Preview

    a. A shortage of working capital
    This can reduce the credit extension as there is shortage of funds

    b. An increase in output to the point ...

    Solution Summary

    The solution discusses factors affecting credit extension policies.